Silver Levels of Interest

[Engineer]

Gold seems to be pushing hard off of the $1350 level and seems to be making a move to $1415 this morning. Up to $1445 soon?

[Jonflyfish]

Good luck out there.
Cheers!

[Frank t]

I want some change!!!
dang you black hole.
the chart seems to be scary accurate.

[dannan14]

Thanks JFF. i think this post may give more detailed information than any other of yours (that i have read). That goes a long way toward understanding the other things you post. i appreciate it.

[Jonflyfish]

Tahks for the feedback guys.
What works, works.....
Cheers!

[Jonflyfish]

Homemade chart of:
1. Price chart of silver
2. Price chart of DJIA Total Return
3. Indicator of silver per 1 share of Dow Jones Total Return Index along with a moving average

Perhaps when the indicator is moving up, long the Dow (and/or short silver) and when below long silver (and/or short the Dow)
Hedge, trade, stack, speculate etc. Just an idea...

Cheers!

[Jonflyfish]

Commitments of traders (COT)
Homemade chart-

1. Weekly silver prices
2. Net positions of Commercials, Large Speculators, Small Speculators
3. Strength Index of Commercials, Large Speculators, Small Speculators

Top set of three intertwined lines reflects the net NYMEX positions of each trading group (long contracts - short contracts).
The lower set of three lines indicates the level of significance for each group's position relative to itself.
Notice on the net positions the commercials (blue) have been understandably short throughout the observed time. However, the strength index (lower set of three lines) shows that the commercials were positioned the most bullish of all groups during the most recent price dip (end of June/early July). Such has been the case for each major price decline.
Also, the small speculators (red line) were the most bullish of all groups right into the price peaks of last March and October.

Cheers!

[neilgin1]

"Nobody Knows What The F**k Is Going On..."

Submitted by Simon Black of Sovereign Man blog,

Financial circles in Hong Kong are buzzing today on the new Goldman Sachs projection that gold may drop below $1,000 an ounce.

And in merely suggesting such a death sentence for the metal, Goldman’s pronouncement pushed the paper price of gold contracts down $20+.

Many technical indicators underscore Goldman’s views. There’s very little floor for gold prices below $1,200, signaling that gold could gap down quickly.

Conventional wisdom is also moving against precious metals. Newspaper headlines are telling us that emerging markets are toast (India, Indonesia, Brazil) while the developed economies (US, Europe, Japan) are on the mend.

Of course, the facts don’t really support this.

•Unemployment in much of southern Europe continues to soar, and Greece is imminently in need of yet another bailout.
•The Japanese government’s most recent budget numbers indicate payments on the national debt totaling 22.2 trillion yen, which constitutes 51.5% of the government’s 43 trillion yen tax revenue.
•In the Land of the Free, the US government is just a few weeks away from defaulting. Again.
Since May, in fact, the US Treasury Department has resorted to ‘extraordinary measures’ to keep the debt level firm at $16.7 trillion (the current debt ceiling) by using clever accounting tricks and confiscating funds from other sources.

As soon as the debt ceiling is raised, however, the national debt in the US will soar once again as these accounting tricks are unwound and reflected on the balance sheet.

For whatever reason, though, few people are paying attention to facts. It’s all about sentiment. And the sentiment right now is that the rich Western economies are back on top.

This is the central thesis underpinning Goldman’s assessment on gold: since the US economy is out of the woods, there’s no longer a need for gold as a risk hedge.

But as my friend told me last night over drinks, “Nobody knows what the f**k is going on…”

He’s a senior-level manager at a major international investment bank, and fully expects the banking system to go under again.

I thought about his candid remarks this morning when I read Goldman’s projection on gold.

But it does beg the question– is it time to get out of precious metals? After all, the momentum is moving in that direction.

Well, if you buy gold hoping to sell it at some point in the future and receive more fiat currency than you paid, then you might as well get out. Gold is not a great speculation right now.

Think about it like this– and take ‘gold’ out of the equation. If the market for widgets had risen 10, 11, 12 years in a row, and had shattered all records for long-term performance, would you still be betting on a rise?

Probably not. Just like housing (which everyone thought would go up forever), gold’s nominal paper price can fall. And it makes far more sense to speculate on something that’s in the dumps right now.

However, this mentality entirely misses the point of precious metals.

Why buy gold hoping to gain more paper currency down the road? Owning gold is all about trading away your paper currency into something that cannot be conjured out of thin air by central banks.

When stored properly (holding physical gold overseas and/or anonymously), there is very little counterparty risk.

The “price” in paper currency may rise. Or it may fall. But this is largely irrelevant.

When the hopes and dreams of the entire global financial system rest on the lies of politicians, the whims of central bankers, and the mountains of debt they have all accumulated, things could turn on a dime… tomorrow.

Gold is an insurance policy. It’s a form of money that you might never need to use. But should that need ever arise, you’ll be so much better off for owning it.

http://www.zerohedge.com/news/2013-09-1 ... t-fk-going

[Jonflyfish]

Some know what's going on and some don't. That's always been the case. Diatribes by angry zerohedge types don't change reality either. Price is the ultimate indicator and the market is the arbiter between those who say price doesn't matter and those who continue accumulating wealth. Pragmatically speaking, it is what it is.

Cheers!

[neilgin1]

Some know what's going on and some don't. That's always been the case. Diatribes by angry zerohedge types don't change reality either. Price is the ultimate indicator and the market is the arbiter between those who say price doesn't matter and those who continue accumulating wealth. Pragmatically speaking, it is what it is.

Cheers!

is that so?.....I saw "World War Z" the other day, whadya think? pretty cool, huh?

I also figgered out a pretty neat wasp trap, get a bottle of Dew, pour out or drank three quarters, cut the bottle 2 thirds up, and wang in the top upside down.....its beautiful, them lil bustards can CRAWL in, drink some sugar water, get full, then they DROWN....I love it.

All da bes, mate

[InfleXion]

Price is the ultimate indicator when supply and demand are accurate. Most of us are aware how price is the fulcrum of supply and demand, the 3 being inexorably intertwined, but when you have faux supply (derivatives) and faux demand (leverage) there is no truth in price. I am all for blind faith when it comes to my creator, but not in market matters.

[Jonflyfish]

Price is the ultimate indicator when supply and demand are accurate. Most of us are aware how price is the fulcrum of supply and demand, the 3 being inexorably intertwined, but when you have faux supply (derivatives) and faux demand (leverage) there is no truth in price. I am all for blind faith when it comes to my creator, but not in market matters.

If you don't believe that price is what are people using as currency when they disagree on value but agree to transact at some untrue price?
Additionally, if one doesn't believe that accounts have a mark-to-market valuation using settlement prices, or if dealers are buying and selling physical, what is the currency they agree to exchange and why aren't those prices transacted actually what they agreed to? Also, why do dealers price their inventory at a market index with a differential if it isn't really what they are truly doing?

Perhaps what you are arguing is about value and not price? Faith and God as mentioned by you are not price.

Price is where both parties disagree on value but agree to transact using some form of currency (FRN's, Euros, Yen, Ameros etc). Every transaction that I have ever made was at a price. Each trade was the true price. It was not a lie. It was actualized. I either paid or received the agreed upon price for a specified quantity of a commodity.

When I look at the marketplace on this forum people ask a price. It is a measure of currency that they asking to transact, almost always FRN's in this case.

The markets are a giant auction full of price discovery. It is collectively where people have put capital at risk. It is what it is. Some believe the price is low, other believe it is high but they have all transacted and that is reflected in the price. That is also why dealers, who are generally fragmented and do not operate on a central exchange or clearinghouse freely choose to base their prices using a centralized liquid market.

Cheers!

[neilgin1]

Jon,

During "Lehman 08", do think it was wise and sound policy to unveil Paulson and Co's "TARP" program to the tune of 800 Bln USD?.....demolishing the concept of moral hazard?...........OR, much like in Oct 1987, we should have traded OUT of the ensuing crash, no matter if the Dow went to 1500?

I was there, on the floor, in the pit, in Oct 87, it was very frightening, but we did it....These days? there is no such animal as a "free market".

I guess anyone that believes there is still a "free market" HAS TO BELIEVE the lie....until of course that day, we hit the wall. Prepare yourself, its coming.

Fret not, I don't like you either....I've known guys like you since I was 21, many now "leading" that farce of a market, haircuts masquerading as men, in reality just the dregs of empire.

[InfleXion]

When price is derived from false supply (derivative contracts) with money that doesn't exist (leverage aka margin) it is inaccurate and the truth in price mantra is undermined. It doesn't matter that people agree on a price when the item they are buying and selling is not the real McCoy. An IOU is not worth an ounce of silver.

[Jonflyfish]

Jon,

During "Lehman 08", do think it was wise and sound policy to unveil Paulson and Co's "TARP" program to the tune of 800 Bln USD?.....demolishing the concept of moral hazard?...........OR, much like in Oct 1987, we should have traded OUT of the ensuing crash, no matter if the Dow went to 1500?

I was there, on the floor, in the pit, in Oct 87, it was very frightening, but we did it....These days? there is no such animal as a "free market".

I guess anyone that believes there is still a "free market" HAS TO BELIEVE the lie....until of course that day, we hit the wall. Prepare yourself, its coming.

Fret not, I don't like you either....I've known guys like you since I was 21, many now "leading" that farce of a market, haircuts masquerading as men, in reality just the dregs of empire.

Not interested in arguing about Dick F and why he failed (or failed to participate in the LTCM wind down). Karma found Lehman.
There is less moral hazard now than seen in many years. TARP in 08 is irrelevant today where Dodd Frank is driving certain OTC markets and participants large and small out of operation. Many large commodity shops have wound down and continue as a consequence. Many market volumes are at 10+ year lows. But to surmise that the DOW would dip to 1500 or any other level is just not useful when it never occurred, nor was there any way to know that it ever would. It's just fodder for those who want it.

We still have a free market system. You say it is a lie but there is not even anecdotal evidence to support this nonsense. Many flippantly and casually toss accusations without evidence. There may/may not be influences but that does not change the fact that the markets are plenty liquid and actionable. Fortune 500 companies are transacting and hedging against many input costs that the general public is not aware of but are benefitting from lower prices. That is factual. It is transparent. Even gold dealers and gold bugs base their prices off of the liquid market centers. If they believed it was all a lie, they wouldn't.

It's interesting to see the comments over the last couple of years or so by those who were so certain that they would, in a very emotionally charged way, take down JPM by crushing them for being short silver contracts in the "mother of all short squeezes". Nobody knows if they were or weren't but any such position would have been exploited on the rollovers over the last few years. It didn't turn out that way. That is no way to trade or profit from the market. As we look back for the last couple of years and what the market has done, I think many would have disagreed that things would turn out as they have. Of course, the silver something dot com websites have had little shortage of excuses and reasons why NOW then NOW then NOW etc etc silver will rally to the moon and beyond. That has falsely comforted many while prices have been more than halved from the peak. Some will say the price isn't real, until they go in the market to sell or buy.

Personally, I could care less what goes up or down. If the facts support one side or the other then it is what it is. It's all in the price. Price is all one needs to make tremendous gains and wealth.

You don't know guys like me because you don't know me. So, no need to get into dogmatic pontifications, painting a derogatory picture or foolishly leading people to believe negative false character traits or say that "you don't like me either". etc etc. I won't engage in such juvenile rubbish. And I don't dislike you as you suggest.

You simply don't know who I am, what I've done, what I represent or what I do and there is no reason to discuss that here.
It's much easier to have constructive conversation when being pragmatic. Please keep the mud slings out. It doesn't move things forward and I refuse to participate in that type of diatribe.
Why is it so hard to have your own perspective without having to build it up by attacking others, preceded by the "I've been there and done that" dogmatism as a qualifier?

Cheers!

[Jonflyfish]

When price is derived from false supply (derivative contracts) with money that doesn't exist (leverage aka margin) it is inaccurate and the truth in price mantra is undermined. It doesn't matter that people agree on a price when the item they are buying and selling is not the real McCoy. An IOU is not worth an ounce of silver.

What false supply? Derivatives contracts are a zero sum. (You can plainly see how this works on the COT charts in this thread). One new contract added to open interest has a party who is short that conttract and another that is long. What supply or demand was generated? How is that false? And if it somehow were, why do retail dealers universally freely choose to rely on it as the pricing source for folks here to buy or sell the physical commodity?

Cheers!

[Frank t]

on a different note, jon thanks for the information, but about the last two charts. i think i see the use of the first one, but what can i realize about the trade levels of speculators, or how can i use this to my advantage? what is it saying? i appreciate your time and please keep it basic for this laymen.

[InfleXion]

When price is derived from false supply (derivative contracts) with money that doesn't exist (leverage aka margin) it is inaccurate and the truth in price mantra is undermined. It doesn't matter that people agree on a price when the item they are buying and selling is not the real McCoy. An IOU is not worth an ounce of silver.

What false supply? Derivatives contracts are a zero sum. (You can plainly see how this works on the COT charts in this thread). One new contract added to open interest has a party who is short that conttract and another that is long. What supply or demand was generated? How is that false? And if it somehow were, why do retail dealers universally freely choose to rely on it as the pricing source for folks here to buy or sell the physical commodity?

Cheers!

I am aware of how contracts are intended to offset, however in the case of gold and silver especially there are positions held off the books where the offsetting is a matter of trust. However this is off-point and is irrelevant.

It doesn't matter if the contracts are zero sum because they are representing an asset that they do not have asset backing for. If everyone who chose to bought a derivative instead had to buy the physical metal, assuming everyone would do so, the price would be much higher because the derivatives are diverting demand away from the real thing and into a proxy. It is this proxification that is creating false supply.

To answer your question, which you know full well the answer to, the reason that this proxification is beneficial is for price stability so that businesses which need to do price forecasting in order to project their bottom line and thus budgeting can do so without worrying about price fluctuation. That is the trade off, you get stability (laugh, look at the chart), and you give up fair value.

Now there is a way to have both stability and fair value which involves using contracts with 100% metal backing as opposed to vacuous backing. This middle ground would be ideal for everyone except for those who want to bully the price, and was in fact the case until 2006 when derivatives were conceived out of the need to divert demand away from the real thing (into the SLV and GLD) so as to keep a steadily tightening supply from becoming too tight. This was the equivalent of putting a finger in the dam to stop the supply drain.

[68Camaro]

Inflexion - well said. Better said than I've been able to do. My failure to find those words is why I've largely stopped trying to make points in discussion of the paper markets.

[Jonflyfish]

When price is derived from false supply (derivative contracts) with money that doesn't exist (leverage aka margin) it is inaccurate and the truth in price mantra is undermined. It doesn't matter that people agree on a price when the item they are buying and selling is not the real McCoy. An IOU is not worth an ounce of silver.

What false supply? Derivatives contracts are a zero sum. (You can plainly see how this works on the COT charts in this thread). One new contract added to open interest has a party who is short that conttract and another that is long. What supply or demand was generated? How is that false? And if it somehow were, why do retail dealers universally freely choose to rely on it as the pricing source for folks here to buy or sell the physical commodity?

Cheers!

I am aware of how contracts are intended to offset, however in the case of gold and silver especially there are positions held off the books where the offsetting is a matter of trust. However this is off-point and is irrelevant.

It doesn't matter if the contracts are zero sum because they are representing an asset that they do not have asset backing for. If everyone who chose to bought a derivative instead had to buy the physical metal, assuming everyone would do so, the price would be much higher because the derivatives are diverting demand away from the real thing and into a proxy. It is this proxification that is creating false supply.

To answer your question, which you know full well the answer to, the reason that this proxification is beneficial is for price stability so that businesses which need to do price forecasting in order to project their bottom line and thus budgeting can do so without worrying about price fluctuation. That is the trade off, you get stability (laugh, look at the chart), and you give up fair value.

Now there is a way to have both stability and fair value which involves using contracts with 100% metal backing as opposed to vacuous backing. This middle ground would be ideal for everyone except for those who want to bully the price, and was in fact the case until 2006 when derivatives were conceived out of the need to divert demand away from the real thing (into the SLV and GLD) so as to keep a steadily tightening supply from becoming too tight. This was the equivalent of putting a finger in the dam to stop the supply drain.

Seems like your thoughts are reasonable. However, there is no such thing as having Comex exchange traded contracts held "off the books" with an offset of "trust". The contracts are fully accounted for and are not hidden. The transactions are fully transparent.

It does matter that the contracts are a zero sum because where there is an "asset" on one side of the transaction (if you want to look at it that way) there is a liability on the other. They are offset and sum to zero. ETF's (and ETN's) such as SLV or GLD are a whole different matter.

Not sure why to laugh at "look at the chart". Locking in fixed or capped costs as a hedge thrughout a tenor structure provides stability for input cost (if naturally short) or marketing revenue (if naturally long) and provides earnings transparency. IT DOES exist today. MANY companies are hedging, even in ways most would never think of on the surface e.g. largest pizza chains hedging natural gas and power etc.

As a side note, I find it somewhat curious how all the JPM "squeeze their shorts until they bleed to death" haters have been muted since prices were subsequently halved.
Should be a calling card to those who make investment decisions fed from the spurious rumor mill.

Cheers!

[Jonflyfish]

on a different note, jon thanks for the information, but about the last two charts. i think i see the use of the first one, but what can i realize about the trade levels of speculators, or how can i use this to my advantage? what is it saying? i appreciate your time and please keep it basic for this laymen.

Thanks Frank. Price tends to do the opposite of the least informed investor class. In this case, it is the "small speculators" (red lines) whereas the smartest group are the commercials (blue lines). While their reasons for participation in the markets are quite different, the net relative position of each group is quite telling. Extremes for either group tend to reflect terrific market inflextion points.

Cheers!

[InfleXion]

Seems like your thoughts are reasonable. However, there is no such thing as having Comex exchange traded contracts held "off the books" with an offset of "trust". The contracts are fully accounted for and are not hidden. The transactions are fully transparent.

JP Morgan had a huge short position which has been bounced around for decades. Up until very recently the shorts outweighed the longs massively, and the only thing anyone could ever cling to for fair markets was that they were holding physical positions outside the COMEX which needed to be hedged. Even today there is not an equal amount of shorts and longs as you say (COT report shows mismatch - http://www.cftc.gov/dea/bank/DeaSept13f.htm). It also matters not whether contracts or in full view or hidden, because again, my point you are missing is that those contracts are not fully backed by what they represent.

It does matter that the contracts are a zero sum because where there is an "asset" on one side of the transaction (if you want to look at it that way) there is a liability on the other. They are offset and sum to zero. ETF's (and ETN's) such as SLV or GLD are a whole different matter.

This supposed "asset" does not have the physical backing to fulfill its existence. SLV and GLD are derivatives, and so are futures. They are all a derivative of the real thing. And as the COT report shows, the zero sum game notion is false. Unless you are referring to something other than futures maybe.

Not sure why to laugh at "look at the chart". Locking in fixed or capped costs as a hedge thrughout a tenor structure provides stability for input cost (if naturally short) or marketing revenue (if naturally long) and provides earnings transparency. IT DOES exist today. MANY companies are hedging, even in ways most would never think of on the surface e.g. largest pizza chains hedging natural gas and power etc.

I only laugh because the "price stability" excuse for "making markets" is a joke. They create instability with margin changes.

As a side note, I find it somewhat curious how all the JPM "squeeze their shorts until they bleed to death" haters have been muted since prices were subsequently halved.

JPM has liquidated their short position. I find it curious why you would expect people to keep re-hashing something that is no longer the case.

[natsb88]

(COT report shows mismatch - http://www.cftc.gov/dea/bank/DeaSept13f.htm)

Am I reading that correctly? 10,075 long vs. 52,737 short? Or does that report only cover banks, not other participants?

This one (http://www.cftc.gov/dea/futures/deacmxsf.htm) shows 94,090 long vs. 101,754 short. But adding the 18,186 and 10,522 "non-reportable" positions brings them to an equal 112,276 each. What is a "non-reportable" position?

[Jonflyfish]

JP Morgan had a huge short position which has been bounced around for decades. Up until very recently the shorts outweighed the longs massively, and the only thing anyone could ever cling to for fair markets was that they were holding physical positions outside the COMEX which needed to be hedged. Even today there is not an equal amount of shorts and longs as you say (COT report shows mismatch - http://www.cftc.gov/dea/bank/DeaSept13f.htm). It also matters not whether contracts or in full view or hidden, because again, my point you are missing is that those contracts are not fully backed by what they represent.

There is no mismatch with the COT report. I pull that data directly from the CFTC and plot it on my charts as seen in this thread. Every week the net position of all traders combined is zero.

This supposed "asset" does not have the physical backing to fulfill its existence. SLV and GLD are derivatives, and so are futures. They are all a derivative of the real thing. And as the COT report shows, the zero sum game notion is false. Unless you are referring to something other than futures maybe.

There is no mismatch with the COT report. I pull that data and plot it on my charts as seen in this thread. Every week the net position of all traders combined is zero.
Derivatives are derived from something, yes. You can also choose to take delivery for Comex contracts or transact using an EFP.It's also a non-arbitrage efficiency. Perhaps that's why bullion dealers freely chose to use the futures prices as their source when determining buy and sell prices. Again, there is nothing false about the zero sum in futures. Longs = Shorts.

I only laugh because the "price stability" excuse for "making markets" is a joke. They create instability with margin changes.

Not sure what you mean here but it sounds like you are saying someone made an excuse to trade by saying the commodity price would be stable?
Price EXPOSURE stability is different. if I am selling or buying at a fixed price then that cost or revenue is stable by establishing a position in the markets. Solar panel manufacturers who are short physical might fix their cost of silver needed to manufacture their product by establishing long futures, swaps or collar positions over a predetermined tenor. Fixing a price is stable and may eliminate and/or offset market price exposure.

JPM has liquidated their short position. I find it curious why you would expect people to keep re-hashing something that is no longer the case.

What short position and how could they unwind the rumored size without getting Amaranth'd? And how could they have rolled contracts forward without being exposed if it was such a mammoth position? And the masses who believed the one or two lieutenants leading the rumor did not experience anything that was promised if the position was true.
To say there was or wasn't a position and what happened to it is just speculation and supposition with less than anecdotal evidence with price history that suggests the exact opposite of what would have taken place in order to unwind such ridiculous size. If I recall correctly, mentioned some many many months ago that betting against JPM as if they were caught in a tenuous position, exposed and waiting for some small traders to show up and punish them would be futile and the wrong idea for trading or investing. One needs a plan, strategy, tactics and above all else, discipline to follow the plan.

Cheers!

[Jonflyfish]

(COT report shows mismatch - http://www.cftc.gov/dea/bank/DeaSept13f.htm)

Am I reading that correctly? 10,075 long vs. 52,737 short? Or does that report only cover banks, not other participants?

This one (http://www.cftc.gov/dea/futures/deacmxsf.htm) shows 94,090 long vs. 101,754 short. But adding the 18,186 and 10,522 "non-reportable" positions brings them to an equal 112,276 each. What is a "non-reportable" position?

You are correct that it is a zero sum. A "non-reportable position" is another way of saying "small retail trader". Commercial positions, commonly used as a hedge, large speculators (portfolio managers) are required to report their positions to the CFTC. Small specs do not.

However, this is not to be confused with trades and how those positions are established. All of those trades cross the tape and clear through the exchange. All futures trades are visible and reflected in price, volume and Open Interest.
As seen in a prior chart posted here, the net positions of each of the three groups (commercials- blue, Large Speculators- green, Small Speculators- red) as expressed by subtracting each group's respective short positions from long. Total Open interest is also shown and matches the numbers reported.




Cheers!